Creating a long-term family financial game plan
When you become a parent, it almost feels like time moves faster. The children grow fast, and it’s as if you go through milestones like you’re driving past billboards on the Skyway (on a Sunday, when the traffic isn’t at all bad). Is it time, really, or could it just be your anxiety about the future, their future?
A good antidote for that anxiety is employing financial planning that transcends beyond mere day-to-day budgeting. Create a budget that helps you lay a foundation for the future, balancing your family’s present needs with long-term. Here are some strategies to help you incorporate your future plans into today’s family budget.
Start by defining your long-term goals and priorities.
Long-term goals would be saving for your child’s college fund, buying a home, and preparing for your retirement to ensure that you remain financially independent in your later years. Having clear goals gives your budgeting process direction and purpose.
Break these long-term goals down into specific targets. Make your goals as specific as possible, with timelines and estimated costs. For example, instead of a generic goal like “save for college,” aim for a specific amount by the year they graduate from high school.
In your budget, assign a portion of your income to different goals based on their priority and time horizon. Remember that a long-term budget is not static. Review it annually or when significant financial changes occur, and adjust as needed.
Make a forecast of your financial situation.
Analyze your current income, expenses, assets, and debts. This gives you a baseline for planning. And then consider potential changes in your income over time, such as salary increases, career changes, or passive income sources.
Make sure to factor in inflation, especially for long-term goals. The cost of education or healthcare, for instance, is likely to increase over time. To compute, you can add 4%, which is the average annual inflation rate from 2018 to 2022 according to the Philippine Statistics Authority.
Think about ways to grow and protect the money you put aside.
Consider long-term investment vehicles like stocks, bonds, mutual funds, retirement accounts, ETFs (Exchange Traded Funds), and real estate, that compound over time. Compounding is the process where an investment earns interest, and then this interest earns interest on itself, leading to exponential growth over time. Here’s a great explanation on chapter 9 of Moneybility, “Your Journey Toward Investing”:
For example, if you have PHP 10,000 that earns 10% interest each year, you would have earned PHP 1,000 by the end of year one.
With compound interest, your PHP 10,000 earns 10% per year and becomes PHP 11,000 after one year. That PHP 11,000 earns another 10% for that year and becomes PHP 12,100 after the second year.
Make sure to diversify your investments across different asset classes and sectors to mitigate risk. This means not putting all your money in one type of investment or one market.
And speaking of risks, get more peace of mind as you plan for the future by ensuring you have adequate insurance — life, health, property — to protect your family from unforeseen financial burdens.
Make it a family affair, and an opportunity to educate.
Share your financial goals and budget plans with your family. Involve them in budgeting decisions, like choosing where to cut costs or how to allocate extra income. This ensures everyone understands and supports the financial decisions. It also gives your children the opportunity to learn about money management, savings, and investments, preparing them to make smart financial decisions in the future.
When you integrate this practice into your family’s routine, you not only work towards your financial goals as a unit but also instill a culture of financial responsibility and literacy. This collaborative approach ensures that every family member is equipped with the knowledge and skills to make informed financial decisions, paving the way for a secure and prosperous future together.
By following these strategies, you can create a comprehensive and realistic long-term budget that not only secures your family's present needs but also diligently works towards fulfilling your future dreams and goals. Remember, the key to successful long-term budgeting is adaptability, regular review, and consistent effort toward your defined objectives.
Learn more about creating a healthy financial foundation for your family: (these will still change based on final titles)
